Title: USD/CAD Faces Mounting Downside Pressure as Investors Eye Key Technical Support Levels
Original article by: FxWirePro, via EconoTimes
The USD/CAD currency pair is navigating a challenging phase, exhibiting mounting downside pressure as market participants assess weakening U.S. economic signals, shifting Federal Reserve policy expectations, fluctuations in crude oil prices, and technical chart dynamics. This analysis explores recent movements in the pair, underlying macroeconomic and geopolitical influences, and key support levels traders are closely monitoring.
Overview of USD/CAD’s Recent Movement
The U.S. dollar to Canadian dollar (USD/CAD) started the week on the defensive, trading lower as risk sentiment tilted against the greenback. The pair slipped towards lower support zones after failing to hold above major resistance levels, shaped primarily by a combination of weaker U.S. economic data and firming expectations of a more dovish Federal Reserve going forward.
Key Trends in USD/CAD Movement (as of early June 2024):
– USD/CAD has been trending lower for the third consecutive session.
– The currency pair is trading around 1.3670–1.3680 after bouncing off intraday lows.
– Sellers remain dominant near the 1.3700 resistance area.
– The pair has steadily moved away from the 50-day and 200-day exponential moving averages (EMAs), suggesting growing bearish momentum.
– RSI (Relative Strength Index) on daily charts trends below 50, reflecting negative momentum underpinned by weakening support for the USD.
Factors Driving USD/CAD Lower
The downside pressure on the USD/CAD pair arises from a combination of domestic developments in the U.S. and Canada, ongoing central bank policy divergence, and evolving commodity price trends.
1. Weakening U.S. Economic Data
The U.S. economy has shown signs of cooling, triggering speculation around future Federal Reserve policy decisions.
– Recent data from the ISM Manufacturing and Services PMI indicated a sharper-than-expected slowdown.
– U.S. GDP growth for Q1 2024 was revised downward to 1.3%, below earlier expectations of around 2%.
– Soft U.S. labor market indicators, reflected in higher-than-expected jobless claims, have added to economic concerns.
These developments have led traders to increase bets that the Federal Reserve might consider rate cuts sooner than previously anticipated.
2. Federal Reserve Policy Expectations
Shifting market expectations for U.S. interest rates have had a measurable impact on the USD. Earlier in 2024, the Fed maintained a hawkish stance due to persistent inflation. However, recent economic soft patches have raised the likelihood of a rate pause or even rate cuts in the latter part of the year.
– CME Group’s FedWatch tool now indicates a 55% probability of at least one 25 basis point cut by September 2024.
– Fed Chair Jerome Powell, in recent commentary, hinted at patience given policy lags, but acknowledged risks to economic growth.
This dovish tilt has weighed on U.S. yields, particularly the 10-year Treasury note, which in turn has pressured the dollar lower across the board, including against the Canadian dollar.
3. Canadian Economic Resilience and BoC Policy Outlook
In contrast to the United States, the Canadian economy has demonstrated relatively stronger performance in recent quarters, providing some support for the loonie.
– Canada’s April inflation figures rose slightly above expectations, keeping the door open for further tightening by the Bank of Canada (BoC).
– The Canadian economy added 90,000 jobs in March 2024, outperforming market expectations by a considerable margin.
– The unemployment rate remains at a relatively stable 5.1%, pointing to resilience in the labor market.
Though BoC Governor Tiff Macklem has recently adopted a more neutral tone, the diverging economic outlook between the U.S. and Canada continues to support CAD strength.
4. Crude Oil Prices Stabilizing
The Canadian dollar is often correlated closely with crude
Read more on USD/CAD trading.